TIDMLAKE
RNS Number : 2206J
Lakehouse plc
27 June 2017
27 June 2017
Lakehouse plc, the asset and support services group
Unaudited Interim Results for the six months ended 31 March 2017
(H1 FY17)
Continued progress with restructuring programme
Bob Holt, Chairman of Lakehouse commented:
"Since my appointment in July 2016, the executive directors and
I have undertaken a wholesale review of the strategy and operations
of the Group. During the six months to 31 March 2017 (H1 FY17), the
core businesses of Compliance, Energy Services and Construction all
performed well, posting underlying double digit EBITA growth. The
Property Services business made a loss in the period as we continue
to reshape the business into profitable workstreams.
The Group is performing strongly and this is evidenced by the
number of new business wins during the period of GBP267m, bringing
the total Order Book to GBP580m (up 7% since year end). We have
been successful in winning both important frameworks and new
contracts particularly across Compliance, Energy Services and
Construction, endorsing our established market positions.
Overall the strength and resilience of the Group has been
demonstrated during the first half and our strategy will be to
continue to focus on sustained performance and delivering a
consistent high quality client service.
In terms of outlook, we expect trading for the full year will
remain in line with management expectations and aim to finalise the
operational improvement process within Property Services during the
second half."
Financial overview:
The Group financial results reflect continued strength in our
core businesses of Compliance, Energy Services and Construction,
together with the ongoing operational improvement process within
Property Services:
Ø Notwithstanding revenue growth of 14% within Compliance,
Energy Services and Construction, Group revenue decreased by 11% to
GBP149.8m (H1 FY16: GBP167.8m), reflecting the strategic review and
subsequent reduction in our activities within Property
Services:
o Compliance revenue increased by 20% to GBP51.8m (H1
FY16:GBP43.2m)
o Energy Services revenues were GBP40.3m, a reduction of 2% on
the GBP41.0m recorded in H1 FY16, but 5% ahead after accounting for
the exit of our Energy South "externals" business in FY16
o Construction revenues increased by 28% to GBP27.6m (H1
FY16:GBP21.7m)
Ø Notwithstanding growth of 13% within Compliance, Energy
Services and Construction, Underlying Group EBITA(1) decreased 49%
to GBP2.6m (H1 FY16: GBP5.1m), again reflecting the impact of
Property Services:
o EBITA in Compliance grew by 10% to GBP2.9m (H1 FY16:
GBP2.6m)
o EBITA in Energy Services fell by GBP0.6m to GBP2.4m (H1 FY16:
GBP3.0m), reflecting the GBP1.1m losses incurred in building our
smart metering business, in line with previous expectations (H1
FY16: GBPnil), which added back would equate to divisional EBITA
growth of 18%
o EBITA in Construction grew by 14% to GBP1.2m (H1 FY16:
GBP1.0m)
Ø Underlying EBITA(1) margins were 1.7% (H1 FY16: 3.1%):
o EBITA margins in Compliance, Energy Services and Construction
were together flat at 3.1%, notwithstanding the aforementioned
GBP1.1m losses in smart metering
Ø Net exceptional items of GBP0.2m reflected a more steady state
position.
Ø Group operating losses were GBP2.8m, compared to a GBP1.0m
operating loss in H1 FY16, including a charge of GBP5.2m for
amortisation of acquisition intangibles (H1 FY16: GBP5.5m).
Ø Loss per share of 2.0p (H1 FY16: loss of 1.0p).
Ø Our cash is seasonal and H1 consumption was significantly
improved on the prior year with an underlying operating cash
conversion outflow(3) of 12% (H1 FY16: outflow of 170%); our long
term sustainable target remains an 80% operating cash conversion
inflow.
Ø Balance sheet remains robust, with net debt of GBP24.7m (31
March 2016: GBP22.6m; 30 September 2016: GBP20.6m); the movement
since year end reflects predominantly GBP2.6m in acquisition
expenditure, all relating to deferred consideration payments.
Ø A dividend payment was made in April 2017 and as a result, the
Board has agreed to defer the payment of an interim dividend. We
maintain our policy of paying a progressive dividend, so the
subject will continue to be reviewed during the second half.
Key performance indicators
Ø High bidding success rate led to contract wins in the period
valued at GBP267m contributing to an order book of GBP580m,
representing growth of 7% since year end (31 March 2016: GBP636m;
30 September 2016: GBP543m).
Ø The Group is now on 337 frameworks (31 March 2016: 224; 30
September 2016: 244).
Ø Sales pipeline of GBP2.5bn as at 31 March 2017 (31 March 2016:
GBP3.4bn; 30 September 2016: GBP3.2bn) reflects a more targeted
approach to business development.
Operational and strategic highlights
Ø Compliance, Energy Services and Construction all performing
well, posting underlying double digit growth in the period.
Ø Property Services turnaround now well underway with new
leadership in place.
Ø Central costs continue to be managed tightly, falling 17%
compared to H1 FY16, with further cost reductions committed during
H2.
Outlook
Ø We are making good progress and the underlying performances of
Compliance, Energy Services and Construction in the period were
strong.
Ø The operational improvement actions continue within Property
Services, as highlighted at the time of the final results to 30
September 2016.
Ø In terms of the outlook, we expect trading for the full year
will remain in line with management expectations and aim to
finalise the operational improvement process within Property
Services during the second half.
Enquiries
Lakehouse Financial Public
Relations
Bob Holt, Chairman, 07778 Camarco
798816
Michael McMahon, Chief Operating Ginny Pulbrook
Officer
Jeremy Simpson, Chief Financial Tom Huddart
Officer
Telephone: 01708 758 800 Telephone: 020
3757 4992
Stockdale Securities
Andy Crossley
Antonio Bossi
Telephone: 020 7601 6100
Notes to editors
Lakehouse is an asset and energy support services group that
constructs, improves, maintains and provides services to homes,
schools, public and commercial buildings with a focus on clients in
the UK public sector and regulated markets. Services are delivered
through four divisions: Compliance, Energy Services, Property
Services and Construction.
The Group was founded in 1988 and is headquartered in Romford,
Essex. It currently employs some 2,200 staff from 32 offices across
the UK.
Definitions
1. EBITA is earnings before interest, tax and amortisation of
acquisition intangibles. Underlying EBITA is defined as operating
profit before deduction of exceptional and other items, as outlined
in Note 3 and on the face of the Condensed Consolidated Statement
of Comprehensive Income. Underlying EBITA is the same as "Operating
profit before exceptional and other items" on the face of the
Condensed Consolidated Statement of Comprehensive Income, but used
as terminology in light of being a key performance measurement for
management in the Group.
2. As set out in the Condensed Consolidated Statement of
Comprehensive Income, other underlying numbers are stated before
exceptional and other items (discussed further in Note 3).
Underlying profit after tax and underlying earnings per share are
net of an imputed tax charge.
3. Underlying operating cash conversion is operating cash flow,
plus the cash impact of exceptional and other items (discussed
further in Notes 3 and 10), as a percentage of underlying
EBITA.
CHAIRMAN'S STATEMENT
Introduction
Strong performance in our core operations
As I discussed in the annual results for the year ending 30
September 2016 (FY16), we expected the year ending 30 September
2017 (FY17) to be one of consolidation, having focused on reviewing
the strategy of the Group, controlling costs at every level and
stabilising operational performance, whilst retaining a high
quality of client service.
I am pleased to report that all of these actions are on track
and delighted that the performance of our Compliance, Energy
Services and Construction businesses, which made up 80% of revenues
during the first half, has been very positive. All posted double
digit underlying growth and an excellent number of new contract
wins. These businesses are performing in line with our expectations
and we remain confident in our strategy to further grow and develop
positions of strength in these key markets.
Property Services turnaround ongoing
Inevitably the focus for operational improvement has centred on
Property Services, where under new management, we have consolidated
our activities and sought to manage our exposure to risk. The focus
of the first half has been in closing out legacy works where we
felt it important reputationally to deliver on contracts through to
finalisation. These are drawing to a close in the main, with the
key remaining actions in concluding a number of final account
negotiations.
As part of the wider review of operations, we examined the
bidding process from identified pipeline through to secured new
wins to ensure we target those clients with whom we can build
secure long term relationships, based on an appropriate balance of
risk and return. This led to a temporary moratorium in bidding for
Property Services work, with bidding only re-commencing mid-way
though the period.
Growth in order book
The Board is encouraged that high bidding success rates, subject
to the strategy outlined above, are being achieved by the Group.
Contract wins in the period totalled GBP267m, contributing to a
period-end order book of GBP580m, representing a 7% increase over
the GBP543m reported at 30 September 2016. This more focussed
approach has brought, particularly, a significant benefit in our
Compliance business.
The order book level was below the GBP636m reported at 31 March
2016 and reflects the planned withdrawal from our externals works
and reduction in bidding activity in Property Services during the
first half. The underlying growth in the order book across our core
activities in Compliance, Energy Services and Construction
(representing GBP475m of the GBP580m) was up 4% period on period
(31 March 2016: GBP456m of the GBP636m). This should be seen in
context as reflecting a more strategic approach, as we continue to
be highly focussed in the types of work we take on and clients we
work with.
Sharper focus in how we view frameworks
We are placed on frameworks which carry a large overall value
and of which our order book represents a subset. As part of the
wider drive for operational improvement, we have refocused the
Group's commercial team and as part of this process, overhauled the
way we look at framework valuation. We have defined "frameworks" to
include secured term contracts (where we are guaranteed work),
along with framework contracts which are subject to mini tender.
The number of frameworks at 31 March 2017 stood at 337 with a value
of GBP1.7bn, up from 224 at 31 March 2016 (value: GBP1.6bn) and 244
at 30 September 2016 (value GBP1.6bn).
Pipeline revisions reflect a more strategic approach
Our pipeline represents target contracts, which range from
pre-qualification through to submitted tenders where we have yet to
hear the result. As I outlined above, we are taking a more
strategic approach to bidding, with a focus on quality over
quantity, such that the overall opportunity for the Group remains
strong. We will therefore continue to review our pipeline during
the second half.
Our Group sales pipeline stood at GBP2.5bn at 31 March 2017, a
reduction on the GBP3.4bn reported at 31 March 2016 and GBP3.2bn at
30 September 2016. This however includes a period on period growth
rate of 3% across Compliance, Energy Services and Construction,
with the overall reduction attributable to Property Services.
Our valuations of order book, frameworks and pipeline were
determined as at 31 March 2017. Following the period end, we
continued to be successful in bidding for new work in our core
businesses, particularly in Compliance, details of which are given
in the Operational Review.
Financial results: overview
The first half has been very pleasing as Compliance, Energy
Services and Construction all showed excellent progression in
trading and we benefitted from retaining tight control over central
costs, which will continue to fall. As anticipated, Property
Services remains in a turnaround situation and the losses incurred
reflect the closing out of legacy contractual matters, as opposed
to any significant underlying operational challenges.
Group revenue was 11% lower at GBP149.8m (H1 FY16: GBP167.8m),
reflecting, as expected, the decline in Property Services. Revenue
in Compliance, Energy Services and Construction together grew by
14%.
Underlying Group EBITA declined by 49% to GBP2.6m (H1 FY16:
underlying EBITA of GBP5.1m), representing a margin of 1.7% (H1
FY16: 3.1%). EBITA in Compliance, Energy Services and Construction
together grew by 13%, with margins maintained overall,
notwithstanding the GBP1.1m losses incurred in building our smart
metering business, in line with previous expectations.
Operating losses were GBP2.8m (H1 FY16: losses of GBP1.0m),
after amortisation of acquisition intangibles of GBP5.2m (H1 FY16:
GBP5.5m) and exceptional items of a net cost of GBP0.2m.
Losses before tax were GBP3.6m, down 99% (H1 FY16: loss of
GBP1.8m). Losses after tax were GBP3.1m (H1 FY16: loss of GBP1.5m),
resulting in a loss per share of 2.0p (H1 FY16: loss of 1.0p).
At 31 March 2017, the Group had net debt of GBP24.7m (31 March
2016: GBP22.6m and 30 September 2016: GBP20.6m), comprising cash
and other items of GBP0.3m, together with a GBP25m drawing under
our revolving credit facility, out of a total facility of GBP40m,
which reduced to GBP35m on 3 April 2017. The increase in net debt
reflects GBP2.6m in acquisition expenditure in the period, all
relating to contractual deferred consideration payments.
Underlying operating cash conversion was ahead of our expected
performance for the half year with an outflow of 12% (H1 FY16:
outflow of 170%), details of which are outlined in the Financial
Review below. This related to normal seasonal patterns, reflecting
an unwinding of working capital in Construction and Property
Services. Our long term target for annual operating cash conversion
remains 80%. Operating cash outflow in the period was GBP1.1m (H1
FY16: outflow of GBP11.4m and FY16: outflow of GBP3.0m). After
adjusting for the flow through of exceptional items from the prior
year, underlying operating cash in the period represented an
outflow of GBP0.3m (H1 FY16: outflow of GBP8.7m and FY16: inflow of
GBP13.2m), a good performance.
Board and people
I am pleased to say that we continue to have a settled Board.
Ric Piper departed as planned in November 2016 with our thanks for
his valuable contribution and very best wishes for the future.
Our divisional management has similarly remained stable and we
look forward to working together to continue to drive the strategy
and operational improvements that will deliver value for all of our
stakeholders.
Most importantly, on behalf of the Board, I would like to thank
all of our employees for their ongoing dedication and the critical
role they play in our success. We continue to invest in our teams,
who represent the heart and lifeblood of our business.
Dividend
A dividend payment was made in April 2017 and as a result, the
Board has agreed to defer the payment of an interim dividend. We
maintain our policy of paying a progressive dividend, so the
subject will continue to be reviewed during the second half.
Outlook
We made very good progress in the period and the underlying
performances of Compliance, Energy Services and Construction were
strong. The operational improvement actions continue within
Property Services, as highlighted at the full year stage.
We expect trading for the full year will remain in line with
management expectations and we aim to finalise the operational
improvement process within Property Services during the second
half.
OPERATIONAL REVIEW
Compliance (35% of Group Revenue / H1 FY16: 26%)
Compliance: six months ended 2017 2016 Change
31 March
------------------------------ ----- ----- --------
Revenue (GBPm) 51.8 43.2 20%
------------------------------ ----- ----- --------
Underlying EBITA (GBPm) 2.9 2.6 10%
------------------------------ ----- ----- --------
Underlying EBITA margin 5.5% 6.0% (50)pts
------------------------------ ----- ----- --------
The Compliance division comprises planned and responsive
maintenance, installation and repair services predominantly to
local authority and housing association clients, in the areas of
gas, fire and electrical, water and air hygiene and lifts. These
services cover clients' social housing and public building assets,
as well as industrial and commercial properties. Gas services
comprise some three quarters of the division and based on
purchasing data, we understand Lakehouse to be the largest gas
business in the social housing sector and second only to British
Gas in the wider UK market.
We are typically paid for service and repair work on a fixed
price basis evenly through the year. The Gas and Lifts businesses
(which make up more than 80% of the division's annual revenues)
have far greater call-out rates during colder months, resulting in
higher labour and materials costs, meaning that we are far more
profitable in the warmer months when call-out rates are lower and
those same engineers can be deployed in works that attract further
income. As a result, a significant proportion of the division's
annual profit will arise during the second half of the financial
year.
With this in mind, Compliance was slightly ahead of management
expectations during the period, with the performance in gas notably
strong, along with our water and air hygene activities. This
reflected a strong end to the half, with a number of clients
seeking to complete works prior to the public sector year end in
March.
Overall, revenue increased by 20% to GBP51.8m, albeit
annualising for the acquisitions of Aaron and Precision in FY16,
the rise was 9%. The growth was driven predominantly by new
contract wins, which we discuss further below.
EBITA was 10% higher at GBP2.9m, resulting in an EBITA margin of
5.5%, down by 50pts, with the main movement one of mix through the
annualised impact of Aaron and Precision during Q1 in what were
lower profit months. The annualised EBITA impact of Aaron and
Precision were less than GBP0.2m, in light of the seasonality of
these businesses. We continue in our expectations for a positive
progression in margins for the full year.
The Compliance board is now well established and focused on
collaborating in matters such as procurement and operating
efficiencies, co-operation in contract bidding and cross-selling. A
notable success this year has been in the support each business has
provided in winning and delivering work, which will allow us to
deliver the best service to clients in each region of operation.
This allows us to provide a truly national offering and deliver the
best service at competitive rates to our client base.
We discussed in our trading update on 7 March 2017, a number of
great wins in the period for each business in the division, which
included a GBP7m commercial gas programme with London &
Quadrant over five years, a GBP2.8m heating and boiler replacement
programme with Central Bedfordshire Council, a GBP2m heating
servicing and repairs contract with Derbyshire County Council over
two years, a GBP1m fire equipment service and maintenance contract
with Shepherd's Bush Housing Association over three years, a four
year legionella framework with Procurement for All potentially
worth GBP650,000 and a GBP1.6m lift modernisation programme with
the London Borough of Hammersmith and Fulham.
Since our last announcement, the division has had even more
success, including a potentially transformational win with Guinness
Trust, where we bid on and secured all three regions on a national
tender, reinforcing our capabilities across the country. We expect
the contract to be worth in excess of GBP5m p.a. over its four year
term. We were also delighted to secure a GBP9.1m heating service
and maintenance contracts with Places for People, a lift
maintenance contract with Westminster City Council worth GBP27m
over ten years, a GBP0.4m fire systems term services contract for
Coventry City Council, a GBP0.5m water hygiene maintenance contract
with London Borough of Ealing, a GBP4.9m heating service and
maintenance contract with Southern Housing Group over four years
and a GBP1.6m boiler replacement programme with Corby Borough
Council. In addition, we have recently secured places on the
Eastern Procurement framework, potentially worth GBP1.6m per annum
and also won a GBP5m heating services contract with Moat Housing
via the SEC framework.
At 31 March 2017, Compliance was on 196 frameworks, up from 98
at 31 March 2016 and 108 at 30 September 2016, with an aggregate
value of GBP553m (31 March 2016: GBP355m and 30 September 2016:
GBP447m).
The outlook for our Compliance businesses remains strong and we
currently expect the division to perform slightly ahead of
management expectations.
Energy Services (27% of Group Revenue / H1 FY16: 24%)
Energy Services: six months 2017 2016 Change
ended 31 March
----------------------------- ----- ----- ---------
Revenue (GBPm) 40.3 41.0 (2)%
----------------------------- ----- ----- ---------
Underlying EBITA (GBPm) 2.4 3.0 (19)%
----------------------------- ----- ----- ---------
Underlying EBITA margin 6.1% 7.3% (120)pts
----------------------------- ----- ----- ---------
Energy Services provides a range of energy efficiency services
for social housing and private homes through its Everwarm
subsidiary, comprising predominantly insulation and heating
systems, along with other lines such as renewable technologies and
electrical vehicle charging points. The division does not however
install aluminium composite or rain screen cladding on high rise
buildings. Everwarm also uses these services to deliver carbon
emissions savings for energy companies, enabling them to meet their
legislative targets. In addition, the division offers smart
metering services through Providor and energy brokerage and
consultancy through Orchard Energy, to customers throughout the
UK.
The insulation business makes up the largest part of the
division and is driven by seasonal influences, as we are unable to
render or use fixing glue necessary for insulation at temperatures
below three degrees. As a result, we typically experience a far
larger number of productive working days in summer, compared to
winter months, with the result that the business sees higher
revenues and margins in H2. This year, we have invested
significantly in the roll-out of our smart metering activities
during H1, which in turn impacted half on half profitability.
Revenue was GBP40.3m in the period, 2% down on the comparative
period, but up 5% after excluding Energy South, an "externals"
business operated by the former Property Services team which we
closed in FY16, as discussed in our FY16 annual results. There was
no annualised impact of acquisitions.
EBITA declined by 19% to GBP2.4m (H1 FY16: GBP3.0m), due to the
GBP1.1m losses incurred in building our smart metering business,
Providor. This was reflected in margins of 6.1%, down from 7.3% in
the comparative period. We currently expect Providor to make a
second half profit, meaning these losses would be in line with
previous guidance. After adding back the GBP1.1m losses in building
smart metering, EBITA grew by 18% versus the comparative
period.
We have seen a stabilisation in carbon prices that underly the
energy subsidy funding for our insulation measures, although
margins overall remain tight. We saw a pleasing uptick in volumes
from the Scottish Government's flagship Home Energy Efficiency
Programme for Scotland ("HEEPS") in the first half, although we may
see a reduction in the second half if funding availability
tightens. The business remains interested in delivering energy
efficiency measures in greater volumes outside Scotland, although
we have yet to see or source suitable market opportunities to take
advantage of our years of industry experience, particularly in
England. We had hoped to participate in the reprocurement of the
Welsh Government's NEST programme in December 2016, but the process
has been delayed, with no available timescale. We have no insight
into the likely impact on our business of the recent General
Election, but continue to believe that insulation offers a low cost
and highly effective means of reducing energy consumption and
alleviating fuel poverty. The insulation sector as a whole lacks a
strong voice in Westminster and we are investigating options to
increase the visibility of the Everwarm's offering nationally.
Providor has seen a steady improvement in engineer utilisation
during the period, an important Key Performance Indicator in
determining profitability. This has been accompanied by a review of
pricing as the complexities of the smart meter installation
programme become more apparent. Providor is one of only a handful
of operators capable of managing a national roll-out of smart meter
installation and we are confident that we have built a strong
market position with future opportunity for growth through
partnership with the leading energy utilities. We are also
developing our service offering as a licenced meter asset manager
to both gas and electricity suppliers, which carries annual
revenues beyond the imminent smart meter installation
programme.
Orchard Energy, our energy procurement and advisory services
business, continues to perform well, in what is an important growth
sector. We have seen a steady growth in our utility services
advisory offering, which is an important and complementary service
to our core brokerage market. Orchard prides itself on levels of
customer service, which are essential in securing the best rates
for customers, as we can model solutions based on their specific
energy needs. The deregulation of the water sector took effect in
England and Wales on 1 April 2017, which we expect will deliver
future growth, albeit over time, as water management remains an
education process for users. We have had notable successes with
users such as schools and hotels and believe there to be a
significant opportunity as an appreciation of potential savings
becomes apparent to customers.
As we announced on 7 March 2017, we were delighted to secure a
major contract with Scottish Power, covering the West Midlands,
which is in addition to an existing contract covering Northern
Scotland, Wales and North West England. The West Midlands contract
requires the installation of some 400,000 meters, comprising both
smart meters and "business as usual" installations, with a value of
GBP39m over its four year term. With our work for Utilita and E, we
now have between 1.25m and 1.5m meters under contract for
installation over the next four years and continue to discuss
opportunities with other operators, albeit we are being cautious on
taking on further work while we continue to focus on mobilising our
current contracts.
Elsewhere we announced that Energy Services had secured
important External Wall Insulation contracts with Fife Council,
Rosehill Housing Association, Grampian Housing Association and the
London Borough of Camden. Since 7 March 2017, we have had further
successes securing a place on the multi-million pound Scotland
Excel framework, EWI work for Almond (GBP1.8m) and North Ayrshire
(GBP1m), our first non-domestic win.
Energy Services is now on 55 frameworks, up from 36 at 30
September 2016 (31 March 2016: 33), with an aggregate value of
GBP438m (31 March 2016: GBP309m and 30 September 2016:
GBP427m).
Energy Services continues to perform in line with management
expectations and we remain optimistic for future opportunities.
Property Services (20% of Group Revenue / H1 FY16: 37%)
Property Services: six months 2017 2016 Change
ended 31 March
------------------------------- ------- ----- ---------
Revenue (GBPm) 30.7 63.2 (51)%
------------------------------- ------- ----- ---------
Underlying EBITA (GBPm) (1.1) 1.9 (157)%
------------------------------- ------- ----- ---------
Underlying EBITA margin (3.5)% 3.0% (650)pts
------------------------------- ------- ----- ---------
Property Services provides planned and responsive maintenance
services for social housing clients, which are mainly local
authorities and housing associations. The division operates through
two businesses:
-- Lakehouse Property Services: operates in London and the South East
-- Foster: operates in East Anglia and the East Midlands
Divisional revenue was GBP30.7m in the period (FY16: GBP63.2m),
down 51%, reflecting the closure of our directly delivered
externals business ("Roofing"), together with a more general
reduction in activity as we sought to stabilise the business. The
business posted an EBITA loss of GBP1.1m (H1 FY16: profit of
GBP1.9m), which was below expectations and reflected our clean-up
of legacy issues, together with a frustrating inconsistency in
workflows from certain key clients, leading to a lack of overhead
recovery, which we addressed during the period as part of the
turnaround exercise. This is discussed in further detail below.
Lakehouse Property Services has represented a significant
operational turnaround, given the challenges experienced in Roofing
in FY16. We installed a new leadership team late in FY16 who have
done a very good job in stabilising operations. The immediate focus
of the team has been in closing out legacy contracts, which have
steadily come to a conclusion and are expected to complete finally
in the second half. The main outstanding items surround closing out
final account negotiations on these legacy contracts and we took
the precaution of creating a reserve at 31 March 2017, discussed
within Exceptional Items in the Financial Review and note 3. A key
focus will be to ensure we avoid further writedowns and minimise
liabilities, but an inevitable uncertainty and risk will remain
until the legacy contracts are closed out, expected to be in the
second half of the year.
Looking forward, Lakehouse Property Services has overhauled its
commercial management and reviewed the risk in projects taken on.
We have prudently walked away from a number of risky projects
before they started, along with exiting certain frameworks. We have
therefore sought to work only with those clients with whom we can
form an effective relationship based on excellent service and
mutual trust. Inevitably we have had to reduce headcount, the costs
of which are discussed further in note 3.
Foster has a strong regional brand. However, we saw a
significant slowing of work in the period as certain clients
provided inconsistent volumes of work under our frameworks. We
responded by reducing staffing levels, particularly among the
senior ranks and now have a smaller, but ambitious and enthusiastic
leadership team in place to take the business forward. We also
instigated a thorough review of operating expenditure, particularly
property, stores, vans and telephony, which brought the cost base
down steadily during the period. We have however seen signs of
improvement among existing clients since the period end.
As with any turnaround, we do not expect immediate results and
anticipate a second half loss in the Property Services
business.
Whilst this has been a challenging period, the division has
secured several encouraging wins, including repair and maintenance
contracts for Hastoe Group (GBP2.3m over four years) and Colchester
Borough Homes (GBP0.2m p.a. over three years), together with
planned maintenance contracts with South Holland District Council
(GBP5.3m over five years), Havebury Housing Partnership (GBP1.8m
over three years) and City West Homes (GBP1m this year). Most
significantly, we secured an important new four year planned
maintenance framework with Network Homes, which provides the
division with access to works on 20,000 properties in our core
operating areas of London, Hertfordshire and the South East, which
we would expect to translate into contracted works of GBP2m to
GBP3m p.a. over the contract period.
We remain highly selective in taking on further work in Property
Services, which is evidenced in the overall reduction in the
Group's order book and pipeline. Property Services is now on 64
frameworks (31 March 2016: 64; 30 September 2016: 71), with an
aggregate value of GBP355m (31 March 2016: GBP548m; 30 September
2016: GBP370m).
Construction (18% of Group Revenue / H1 FY16: 13%)
Construction: six months 2017 2016 Change
ended 31 March
-------------------------- ----- ----- --------
Revenue (GBPm) 27.6 21.7 28%
-------------------------- ----- ----- --------
Underlying EBITA (GBPm) 1.2 1.0 14%
-------------------------- ----- ----- --------
Underlying EBITA margin 4.2% 4.7% (50)pts
-------------------------- ----- ----- --------
Construction is a public buildings services business that
delivers extension, refurbishment, rationalisation and new build
works, primarily in the education market, with a particular focus
on schools.
Revenues of GBP27.6m represented a growth of 28% on the figure
for the same period in the prior year of GBP21.7m. Whilst
representing an excellent level of growth, we nevertheless continue
to experience delays on new contracts related to the changed two
stage procurement process, which can extend projects by 12 months.
In this context, the achievement is ever more significant as the
business remains strong and profitable.
EBITA was GBP1.2m, representing a growth of 14% on the figure
for the same period in the prior year of GBP1.0m and reflected the
higher volumes achieved. The EBITA margin was 4.2%, down 50pts on
the comparative period, which largely reflects mix and timing of
contract revenues.
As we discussed on 7 March 2017, we were delighted that the
Chadwell Heath Campus at Redbridge College, a Lakehouse design and
build project, won the Light and Exterior Surface award at the
recent Surface Design Awards, demonstrating the quality and
innovation Lakehouse brings to such works. Since our last trading
update, we were pleased to be awarded three Considerate Constructor
awards for Oxhey, Bounds Green and Ellen Wilkinson Schools at the
recent National Considerate Constructors Awards, which recognises
the efforts and initiatives that the Lakehouse team bring to their
projects and community. The division has also secured a number of
important wins including an GBP8.9m contract for Hackbridge School
(London Borough of Sutton), a GBP3.3m contract for Colville School
(London Borough of Kensington & Chelsea), a GBP3.8m contract
for Galleywall School (City of London) and a GBP5.1m contract for
West Hatch School (Essex County Council).
We have continued our policy of bidding selectively, with a
particular eye on risk versus return, continuing a model that has
stood the business well in the past. The expected increase in
secondary and higher education appears to be coming through and
with it, a slight increase in average project size, which is now in
the range of GBP4m to GBP5m.
The number of frameworks fell to 22 at 31 March 2017, from 29 as
at 31 March 2016 and 30 September 2016, with an aggregate value of
GBP335m (31 March 2016: GBP368m; 30 September 2016: GBP353m). The
fall reflects a strategic decision not to retender, along with
certain frameworks ceasing and migrating into other procurement
hubs. Our opportunity therefore remains consistent with prior
periods.
FINANCIAL REVIEW
The Operational Review provides a detailed overview of our
trading performance during the period. This Financial Review
therefore covers other aspects of the Income Statement, Cash Flows
and the Balance Sheet.
Trading overview
Revenue was 11% lower at GBP149.8m (H1 FY16: GBP167.8m),
reflecting as expected, the decline in Property Services. Revenue
in Compliance, Energy Services and Construction together grew by
14%.
Underlying EBITA declined by 49% to GBP2.6m (H1 FY16: underlying
EBITA of GBP5.1m), representing a margin of 1.7% (H1 FY16: 3.1%).
EBITA in Compliance, Energy Services and Construction together grew
13%, with margins maintained overall, notwithstanding the GBP1.1m
losses incurred in building our smart metering business, in line
with previous expectations. In determining underlying EBITA, we
exclude exceptional and other items, as outlined in Note 3.
Underlying EBITA is the same as "Operating profit before
exceptional and other items" on the face of the Condensed
Consolidated Statement of Comprehensive Income, but used as
terminology in light of being a key performance measurement for
management in the Group.
Operating losses were GBP2.8m (H1 FY16: losses of GBP1.0m),
after amortisation of acquisition intangibles of GBP5.2m (H1 FY16:
GBP5.5m) and exceptional items of a net cost of GBP0.2m.
Losses before tax were GBP3.6m, down 99% (H1 FY16: loss of
GBP1.8m). Losses after tax were GBP3.1m (H1 FY16: loss of GBP1.5m),
resulting in losses per share of 2.0p (H1 FY16: loss of 1.0p).
Operating expenses decreased 14% to GBP13.0m in the period (H1
FY16: GBP15.1m), reflecting the outcome of the operational
improvement plan discussed at the half year last year, together
with a drive for operational efficiency. Central costs reduced by
17% to GBP2.8m (H1 FY16: GBP3.4m), reflecting reductions to central
departments, as we moved to empower businesses locally.
Exceptional items
Net exceptional items in the period amounted to GBP0.2m,
reflecting a more steady state. We took a GBP1.3m (2016: GBPnil)
reserve for the final account settlements for the exited Roofing
business, together with a small restructuring charge of GBP0.3m
(2016: GBPnil), discussed above in the operational review of
Property Services. Against this, we secured a successful outcome of
GBP0.5m (2016: GBPnil) on a series of adjudications associated with
the resolution of historic matters on a specific contract and saw a
GBP0.9m (2016: GBPnil) release of deferred consideration in
relation to the early settlement of Orchard Energy Limited
(discussed below), together with a review of gross balances
outstanding on other historic acquisitions. Further details are
provided in note 3.
Amortisation of acquisition intangibles
When Lakehouse acquires businesses, the estimated value of their
intangible assets (such as customer contracts and non-compete
undertakings from vendors) is recognised on the Group's Balance
Sheet. These acquisition intangibles are then amortised over their
expected useful lives, estimated at between four and six years. We
exclude this amortisation charge from our calculation of adjusted
EBITA as the Board believes the underlying operating performance of
our business is better understood before such costs.
Amortisation of acquisition intangibles was GBP5.2m during the
period (H1 FY16: GBP5.5m) with the decrease of GBP0.3m reflecting
the fact that we have taken amortisation charges in prior periods,
meaning we are amortising a reduced base of intangible assets.
Finance expense
Finance expense is the interest charged on our debt facilities
and the unwinding of the discount applied to deferred consideration
on acquisitions. The expense in the first half was flat at GBP0.8m
(H1 FY16: GBP0.8m), albeit we expect the year as a whole to show a
rise, reflecting the higher rate of interest on our renegotiated
revolving credit facility.
This expense includes a non-operating sum of GBP0.1m (H1 FY16:
GBP0.4m) relating to the unwinding of discounts on deferred
consideration due in respect of acquisitions.
Tax
The effective tax rate for the period was 14%, compared with a
statutory rate of corporation tax of 20%.
Earnings per share
Our losses for the period were GBP3.1m (H1 FY16: loss of
GBP1.5m). Based on the weighted average number of shares in issue
during the period of 157.5m, this resulted in basic losses per
share of 2.0p (H1 FY16: loss per share of 1.0p). Our underlying
basic earnings per share were 0.9p (H1 2016: 2.4p).
Cash conversion
Underlying operating cash conversion was ahead of our expected
performance in the half year with an outflow of 12% (H1 FY16:
outflow of 170%). This reflected an unwinding of working capital in
Construction and Property Services, where the value of negative
work in progress relating to our packaged subcontractor model fell
from GBP12.0m at 30 September 2016 to GBP4.0m at 31 March 2017 (31
March 2016: negative work in progress of GBP4.2m). Whilst this
trend is expected due to the seasonal nature of our activities, the
reduction was exacerbated by the two stage contract delays in
Construction, discussed above, together with the ongoing revenue
decline within Property Services.
Operating cash conversion was strong in Compliance and Energy
Services, together exceeded 100%, notwithstanding the seasonal
challenges in our gas businesses, which incur higher overtime and
materials costs (and investment in inventory) in the winter.
Operating cash outflow in the period was GBP1.1m (H1 FY16:
outflow of GBP11.4m and FY16: outflow of GBP3.0m). After adjusting
for the flow through of exceptional items from the prior year,
underlying operating cash in the period represented an outflow of
GBP0.3m (H1 FY16: outflow of GBP8.7m and FY16: inflow of GBP13.2m).
The Board calculates underlying operating cash conversion as cash
generated from operations, plus exceptional cash expenses, divided
by adjusted EBITA, to provide a consistent comparison of underlying
cash generation.
On a steady state basis, we expect to continue to target an
average annual underlying operating cash conversion of 80% over the
long term.
Net debt and banking facilities
At 31 March 2017, the Group had net debt of GBP24.7m (31 March
2016: GBP22.6m and 30 September 2016: GBP20.6m), comprising cash
and other items of GBP0.3m, together with a GBP25m drawing under
our revolving credit facility, out of a total facility of GBP40m,
which reduced as agreed to GBP35m on 3 April 2017. Net debt
reflects GBP2.6m in acquisition expenditure in the period, all
relating to deferred consideration payments.
Statement of financial position
The principal items in our Balance Sheet are goodwill,
intangible assets, debt and working capital.
31 March 31 March 30 Sept
2017 2016 2016
GBPm GBPm GBPm
Goodwill and intangibles 64.3 93.1 69.3
Tangible and other 5.8 4.1 4.7
--------- --------- --------
Fixed assets 70.1 97.2 74.0
--------- --------- --------
Current assets 80.2 94.2 75.7
Net cash and equivalents 0.1 2.1 (0.3)
Current liabilities (71.2) (76.8) (68.4)
--------- --------- --------
Net current assets 9.1 19.5 7.0
--------- --------- --------
Non-current liabilities (6.5) (11.1) (9.7)
Debt (24.8) (24.7) (20.3)
--------- --------- --------
Net assets 47.9 80.9 51.0
--------- --------- --------
Net current assets
(excluding cash) 9.0 17.4 7.3
Net negative work
in progress (packaged
subcontractors) (4.0) (4.2) (12.0)
Net current assets excluding cash were GBP9.0m (31 March 2016
GBP17.4m; 30 September 2016: GBP7.3m). We continued to control
tightly our use of working capital during the first half but as
discussed above, the movement in negative work in progress impacted
the value of net current assets, together with a rise in
inventories, reflecting the seasonal needs of our gas businesses,
together with the mobilisation of new metering contracts in
Providor. We continue to focus on receivables, which stood at 37
days at 31 March 2017 (31 March 2016: 38 days) and have invested in
our credit control function, where we have some particularly
dedicated individuals.
Goodwill and intangibles fell from GBP69.3m at 30 September 2016
to GBP64.3m at 31 March 2017 (31 March 2016: GBP93.1m), reflecting
amortisation of GBP5.2m in the period.
As at 31 March 2017, we held provisions of GBP4.7m (31 March
2016 GBP4.3m; 30 September 2016: GBP4.9m). Some GBP0.5m was
utilised in in the period in relation to resolving the ongoing
matters to which the provisions
pertain, in line with management expectations. Further details are set out in Note 9.
Deferred consideration
A number of the acquisitions by the Group made in recent years
incorporate deferred consideration as part of the transaction
terms, some of which depend on the performance of the businesses
post-completion.
A sum of GBP2.6m was paid in the period in respect of Allied
Protection (GBP0.3m) and H2O Nationwide (GBP0.5m) reflecting
non-contingent deferred sums due to the vendors under the relevant
sale & purchase agreements. The Board also agreed to pay the
sums due to the vendors of Orchard early, representing a payment of
GBP1.8m, in return for a significant discount on the maximum sum
due, that the Board felt represented good value for the Group.
The net sums due under deferred consideration stood at GBP2.5m
at 31 March 2017 (31 March 2016: GBP9.5m; 30 September 2016:
GBP5.9m).
Audit Position
These interim statements are unaudited, as the Company's shares
have been admitted to trading on AIM. This provides a significant
cost-saving.
Risks
The Board considers strategic, financial and operational risks
and identifies actions to mitigate those risks. Key risks and their
mitigation were disclosed on pages 30 to 33 of the Annual Report
for the year ended 30 September 2016.
We continue to manage a number of potential risks and
uncertainties - many of which are common to other similar
businesses including claims and disputes - which could have a
material impact on short and longer term performance.
In particular the Board remains focussed on the outcome of a
number of contract settlements, particularly in Property Services,
on which there is a range of outcomes for the Group in terms of
both cash flow and impact on the Income Statement.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 31 March 2017
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 September
2017 2016 2016
Notes GBP'000 GBP'000 GBP'000
Revenue 2 149,802 167,811 333,838
Cost of sales (134,257) (147,539) (300,059)
Gross profit 15,545 20,272 33,779
Other operating expenses (13,019) (15,134) (32,556)
Share of results of joint
venture 90 - 537
Operating profit before
exceptional and other
items 2,616 5,138 1,760
Exceptional costs 3 (1,107) (587) (5,742)
Exceptional income 3 924 - 2,672
Impairment of goodwill
and intangible assets
acquired 3 - - (19,204)
Amortisation of acquisition
intangibles 3 (5,254) (5,554) (11,156)
Operating loss 2 (2,821) (1,003) (31,670)
Finance expense (818) (828) (1,657)
Investment income 34 21 46
Loss before tax 2 (3,605) (1,810) (33,281)
Taxation 4 522 274 4,013
Loss for the period attributable
to the equity holders
of the Group (3,083) (1,536) (29,268)
============= ============= ===============
Loss per share
Basic (2.0)p (1.0)p (18.6)p
Diluted (2.0)p (1.0)p (18.6)p
======= ======= ========
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 March 2017
As at
As at As at 30 September
31 31 2016
March March
2017 2016
Notes GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
Non-current assets
Goodwill 47,626 63,571 47,338
Other intangible assets 16,692 29,589 21,947
Property, plant and equipment 2,622 3,342 2,826
Interest in joint venture 1,027 - 537
Trade and other receivables 2,148 745 1,359
70,115 97,247 74,007
------------ ------------ --------------
Current assets
Inventories 7,443 7,388 5,187
Amounts due from customers
under construction contracts 3,308 3,169 3,161
Trade and other receivables 68,523 83,605 65,633
Corporation tax receivable 20 - 1,451
Deferred tax asset 897 - 229
Cash and cash equivalents 8 302 2,459 -
------------ ------------ --------------
80,493 96,621 75,661
------------ ------------ --------------
Total assets 150,608 193,868 149,668
------------ ------------ --------------
Current liabilities
Amounts due to customers
under construction contracts 630 1,320 690
Trade and other payables 68,197 73,118 65,801
Loans and borrowings 8 - - 71
Finance lease obligations 8 230 303 222
Provisions 9 2,358 1,699 1,904
Income tax payable - 651 -
------------ ------------ --------------
71,415 77,091 68,688
------------ ------------ --------------
Net current assets 9,078 19,530 6,973
------------ ------------ --------------
Non-current liabilities
Trade and other payables 4,201 6,064 6,236
Loans and borrowings 7,8 24,523 24,524 20,586
Finance lease obligations 8 224 221 164
Provisions 9 2,308 2,574 2,974
Deferred tax liability - 2,459 -
31,256 35,842 29,960
------------ ------------ --------------
Total liabilities 102,671 112,933 98,648
------------ ------------ --------------
Net assets 47,937 80,935 51,020
============ ============ ==============
Equity
Called up share capital 15,753 15,753 15,753
Share premium account 25,314 25,314 25,314
Share-based payment reserve 776 709 776
Own shares (290) (290) (290)
Merger reserve 20,067 20,067 20,067
Retained earnings (13,683) 19,382 (10,600)
Equity attributable to
equity holders of the
Company 47,937 80,935 51,020
============ ============ ==============
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 31 March 2017
Share-based
Share payment
Share premium reserve Own Merger Retained Total
capital account shares reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 October
2015 15,753 25,314 709 (290) 20,067 23,911 85,464
Loss for the
period - - - - - (1,536) (1,536)
Dividends paid - - - - - (2,993) (2,993)
---------- ---------- ------------ --------- ---------- ----------- ---------
At 31 March
2016 15,753 25,314 709 (290) 20,067 19,382 80,935
Loss for the
period - - - - - (27,732) (27,732)
Dividends paid - - - - - (1,575) (1,575)
Share-based
payment charge - - 67 - - (67) -
Current tax
- Excess tax
deductions related
to share-based
payments - - - - - (608) (608)
At 30 September
2016 15,753 25,314 776 (290) 20,067 (10,600) 51,020
Loss for the
period - - - - - (3,083) (3,083)
At 31 March
2017 15,753 25,314 776 (290) 20,067 (13,683) 47,937
======= ======= ==== ====== ======= ========= ========
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 31 March 2017
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 September
2017 2016 2016
Notes GBP'000 GBP'000 GBP'000
Cash flows from operating
activities
Cash used in operations 10 (1,139) (11,434) (3,014)
Interest paid (505) (303) (808)
Interest received 31 21 46
Taxation 1,286 1,165 (268)
Net cash used in operating
activities (327) (10,551) (4,044)
------------- ------------- ---------------
Cash flows from investing
activities
Purchase of shares in
subsidiaries, net of cash
acquired (2,588) (14,972) (17,672)
Purchase of property,
plant and equipment (494) (492) (819)
Purchase of intangible
assets (202) (164) (291)
Sale of property and equipment 102 53 160
Loan to associate - - (250)
Net cash used in investing
activities (3,182) (15,575) (18,872)
------------- ------------- ---------------
Cash flows from financing
activities
Dividend paid to shareholders - (2,993) (4,568)
Proceeds from bank borrowings 4,000 25,000 21,000
Repayments to finance
lease creditors 68 (218) (357)
Finance issue costs (186) (138) (164)
Net cash generated from
financing activities 3,882 21,651 15,911
------------- ------------- ---------------
Net increase / (decrease)
in cash and cash equivalents 373 (4,475) (7,005)
Cash and cash equivalents
at beginning of year (71) 6,934 6,934
Cash and cash equivalents
at end of year 302 2,459 (71)
============= ============= ===============
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 31 March 2017
1. Basis of preparation
The condensed consolidated financial statements for the six
months ended 31 March 2017 have been prepared in accordance with
the Disclosure and Transparency Rules (DTR) of the Financial
Services Authority and with IAS 34 'Interim Financial Reporting'.
The condensed consolidated financial statements do not include all
the information and disclosures required in the annual financial
statements and should be read in conjunction with the Group's
annual financial statements, being the statutory financial
statements for Lakehouse plc, as at 30 September 2016, which have
been prepared in accordance with IFRS as adopted by the European
Union.
The condensed consolidated financial statements for the six
months ended 31 March 2017 do not compromise statutory accounts
within the meaning of Section 434 of the Companies Act 2006.
Statutory accounts for the year ended 30 September 2016 have been
approved by the Board of Directors and delivered to the Registrar
of Companies. These accounts, which contained an unqualified audit
report under Section 495, did not include a reference to any
matters to which the auditor drew attention by way of emphasis of
matter and did not contain a statement under Section 498 (2) or (3)
of the Companies Act 2006.
Significant accounting policies
The accounting policies adopted in the preparation of the
condensed consolidated financial statements are consistent with
those followed in the preparation of the Group's annual financial
statements for the year ended 30 September 2016.
Seasonality
The Group has seasonal influences in specific areas. The
Compliance division experiences higher activity levels in Gas and
Lift services in colder weather, leading to higher working capital
requirements and lower profitability in winter, and the opposite in
the summer. Within Energy Services it is not possible to render
walls or use fixing glue at temperatures below three degrees
centigrade, nor perform cladding work in high winds. As such,
weather has an influence on this business, meaning that the Group
has to plan to increase capacity during warmer and more settled
periods to compensate for time lost during colder ones.
2. Operating segments
The Board of Directors has determined an operating management
structure aligned around the four core activities of the Group,
with the following operating segments applicable:
-- Compliance
-- Energy Services
-- Property Services
-- Construction
All revenue and profit is derived from operations in the United
Kingdom only.
The following is an analysis of the Group's revenue and
Underlying EBITA by reportable segment:
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 September
2017 2016 2016
GBP'000 GBP'000 GBP'000
Revenue
Compliance 51,767 43,141 91,023
Energy Services 40,268 41,045 67,436
Property Services 30,771 63,241 98,143
Construction 27,643 21,679 52,051
Total segment revenue 150,449 169,106 308,653
Inter-segment elimination (647) (1,295) (2,866)
------------- ------------- ---------------
Total underlying revenue 149,802 167,811 305,787
------------- ------------- ---------------
Mobilisation of smart metering - - 2,803
Contract revenue on businesses
being exited - - 25,248
------------- ------------- ---------------
Revenue from external customers 149,802 167,811 333,838
============= ============= ===============
Inter-segment trading comprises services provided by the
Compliance segment for the Property Services segment and are
charged at prevailing market prices.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the six months ended 31 March 2017
2. Operating segments (continued)
Reconciliation of Underlying EBITA to loss before taxation
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 September
2017 2016 2016
GBP'000 GBP'000 GBP'000
Underlying EBITA by segment
Compliance 2,853 2,583 6,169
Energy Services 2,447 3,003 8,026
Property Services (1,062) 1,872 780
Construction 1,168 1,024 3,606
Central costs 1 (2,790) (3,344) (7,672)
------------- ------------- ---------------
Total underlying EBITA 2,616 5,138 10,909
Mobilisation of smart metering - - (2,493)
Contract losses on businesses
being exited - - (6,656)
Exceptional costs (1,107) (587) (5,742)
Exceptional income 924 - 2,672
Impairment of goodwill and
intangible assets acquired - - (19,204)
Amortisation of acquisition
intangibles (5,254) (5,554) (11,156)
Operating loss (2,821) (1,003) (31,670)
Finance costs (818) (828) (1,657)
Investment income 34 21 46
Loss before taxation (3,605) (1,810) (33,281)
============= ============= ===============
1 Central costs are those costs that are not allocated directly
in support of a segment and comprise certain group service
functions.
3. Exceptional and other items, including amortisation of acquisition intangibles
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 September
2017 2016 2016
GBP'000 GBP'000 GBP'000
Contract losses on businesses
being exited - - 6,656
Smart metering mobilisation
costs - - 2,493
------------- ------------- ---------------
Total 'Other Items' - - 9,149
------------- ------------- ---------------
Acquisition costs 14 587 642
Final account provisions 1,321 - -
Impairment of receivables (540) - 2,567
Restructuring 312 - 2,533
Total exceptional costs 1,107 587 5,742
Release of deferred consideration (924) - (2,672)
------------- ------------- ---------------
Total exceptional items 183 587 3,070
------------- ------------- ---------------
Impairment of goodwill and
intangible assets acquired - - 19,204
Amortisation of acquisition
intangible assets 5,254 5,554 11,156
------------- ------------- ---------------
5,437 6,141 42,579
Unwinding discount of deferred
consideration 140 326 587
------------- ------------- ---------------
Total exceptional and other
items 5,577 6,467 43,166
============= ============= ===============
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the six months ended 31 March 2017
3. Exceptional and other items, including amortisation of acquisition intangibles (continued)
Exceptional and other items in the period reduced the Group's
profit before tax by GBP5.6m and related to the following
items:
Exceptional items
Acquisition costs comprise legal, professional and other
expenditure in relation to acquisition activity during the period
and amounted to GBP14,000 (2016: GBP0.6m).
Final account provisions of GBP1.3m (2016: GBPnil) reflected
management caution surrounding final account settlement on a number
of legacy "Roofing" contracts in the Property Services
division.
Impairment of receivables, representing an income of GBP0.5m
(2016: GBPnil) reflected the successful outcome of a series of
adjudications associated with the resolution of historic matters on
a specific contract where a charge had been taken at 30 September
2016, further details of which are outlined in note 7 of our Annual
Report and Accounts for the year ending 30 September 2016.
Restructuring of GBP0.3m (2016: GBPnil) reflects in the main,
costs associated with the turnaround of the Property Services
division during the period.
Release of deferred consideration of GBP0.9m (2016: GBPnil)
reflects the early settlement at a discount of deferred
consideration due in respect of Orchard Energy Limited, together
with a review of the gross balances outstanding on other historic
acquisitions.
Amortisation of acquisition intangibles
Amortisation of acquisition intangibles was GBP5.2m for the
period (2016: GBP5.5m); with the GBP0.3m reduction reflecting the
fact that we have taken amortisation charges in prior periods,
meaning we are amortising a reduced base of intangible assets.
Unwinding discount of deferred consideration
Unwinding discount of deferred consideration of GBP0.1m (2016:
GBP0.4m) reflects the present value of deferred sums, discounted at
a post-tax rates of between 2.2% and 8.5%, due on outstanding
payments for acquisitions.
Accounting treatment
The costs discussed above are considered non-trading because
they are not part of the underlying trading of the Group and (aside
from amortisation of acquisition intangibles and unwinding discount
of deferred consideration) are not expected to recur year to
year.
4. Taxation
The effective tax rate for the period was 14%, compared with a
statutory rate of corporation tax of 20%.
5. Dividends
The proposed final dividend for the year ended 30 September 2016
of 0.5 pence per share amounting to GBP0.8m and representing a
total dividend of 1.5 pence for the full year (2015: 1.9 pence per
share), was paid on 6 April 2017 to the shareholders on the
register at the close of business on 10 March 2017.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the six months ended 31 March 2017
6. (Losses) / earnings per share
The calculation of the basic and diluted (losses)/earnings per
share is based on the following data:
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 September
2017 2016 2016
Number Number Number
Weighted average number of
ordinary shares for the purposes
of basic loss / earnings per
share 157,527,103 157,527,103 157,527,103
Diluted
Effect of dilutive potential
ordinary shares:
Share options 6,221,895 2,937,081 2,897,178
------------- ------------- -----------------
Weighted average number of
ordinary shares for the purposes
of diluted loss / earnings
per share 163,748,998 160,464,184 160,424,281
============= ============= =================
Loss for the purpose of basic
and diluted earnings per share
being net loss attributable
to the owners of the Company
(GBP'000) (3,083) (1,536) (29,268)
Basic loss per share (2.0)p (1.0)p (18.6p)
Diluted loss per share (2.0)p (1.0)p (18.6p)
Earnings for the purpose of
underlying earnings per share
being underlying net profit
attributable to the owners
of the Company (GBP'000) 1,382 3,820 8,178
Adjusted basic earnings per
share 0.9p 2.4p 5.2p
Adjusted diluted earnings per
share 0.8p 2.4p 5.1p
============= ============= =================
The number of shares in issue at 31 March 2017 was
157,527,103.
The weighted average number of Ordinary shares in issue during
the year excludes those accounted for in the own shares
reserve.
7. Loans and borrowings
31 31 30 September
March March 2016
2017 2016
GBP'000 GBP'000 GBP'000
Bank loans and credit facilities
at amortised cost:
Current - - 71
Non-current 24,523 24,524 20,586
-------- -------- --------------
24,523 24,524 20,657
Maturity analysis of bank loans
and credit facilities falling
due:
In one year or less, or on
demand - - 71
Between one and two years 24,523 - -
Between two and five years - 24,524 20,586
After more than five years - - -
-------- -------- --------------
24,523 24,524 20,657
-------- -------- --------------
In December 2014, the Group renegotiated its bank facilities to
provide an overdraft facility of GBP5m together with a Revolving
Credit Facility ("RCF") of GBP30m, which was extended to GBP45m in
December 2015. The Group agreed a variation to the RCF in January
2017 with Royal Bank of Scotland to reduce the RCF to GBP40m and
further reduce the facility to GBP35m in April 2017. The variation
to the RCF included a revision to the banking covenants, which
reflect the lower earnings expectations of the Group, and a higher
rate of interest.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the six months ended 31 March 2017
8. Net debt
31 31 30 September
March March 2016
2017 2016
GBP'000 GBP'000 GBP'000
Cash and cash equivalents /
(overdraft) 302 2,459 (71)
Bank loans and credit facilities (25,000) (25,000) (20,586)
Unamortised finance costs (included
in trade and other receivables) - - 414
Unamortised finance costs (included
in loans and borrowings) 477 476 -
Finance lease obligations (454) (524) (386)
------------- ------------- --------------
(24,675) (22,589) (20,629)
------------- ------------- --------------
9. Provisions
Legal
and other
GBP'000
At 1 April 2016 4,273
Identified on acquisition 558
Additional provision 885
Utilised in the period (838)
----------
At 30 September 2016 4,878
Adjustment relating
to acquisitions 288
Utilised in the period (500)
----------
At 31 March 2017 4,666
==========
Current provisions 2,358
==========
Non-current provisions 2,308
==========
Legal and other
Other costs relate to property dilapidation obligations,
potential contract settlement costs and other potential legal
settlement costs. The largest figure relates to the potential
contract settlement costs which have been made on management review
of contractual obligations faced on legacy contracts and include
exceptional remediation expenses associated with the resolution of
historic matters on a specific contract, as referred to in our
annual results to 30 September 2016. These are expected to result
in an outflow of economic benefit over the next one to two years.
Some GBP0.5m was utilised in in the period in relation to resolving
the ongoing matters to which the provisions pertain.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the six months ended 31 March 2017
10. Cash generated from operations
Audited
Unaudited Unaudited year
six months six months ended
ended ended 30 September
31 March 31 March 2016
2017 2016
GBP'000 GBP'000 GBP'000
Operating loss (2,821) (1,003) (31,670)
Adjustments for:
Depreciation 672 796 1,621
Amortisation of intangible
assets 5,457 5,728 11,479
Impairment of goodwill
and intangible assets
acquired - - 19,204
Profit on disposal of
property, plant and equipment (76) (34) (95)
Change in provisions (500) (2,380) (2,334)
Changes in working capital:
Inventories (2,256) (1,722) 478
Amounts owed by customers
under construction contracts (147) (1,116) (1,108)
Amounts owed to customers
under construction contracts (60) 746 116
Trade and other receivables (4,234) 131 16,706
Trade and other payables 2,826 (12,580) (17,411)
Cash used by operations (1,139) (11,434) (3,014)
------------- ------------- --------------
Underlying operating cash
conversion calculation
Cash used by operations (1,139) (11,434) (3,014)
Exceptional and other
cash costs paid in the
period 832 2,702 16,226
Underlying cash (used
by)/generated from operations (307) (8,732) 13,212
Underlying operating profit
before exceptional items
and amortisation of acquisition
intangibles 2,616 5,138 10,909
Underlying operating cash
conversion % (12%) (170%) 121%
------------- ------------- --------------
Exceptional and other costs in the period relate
to the cash impact of Exceptional and other items
disclosed in Note 3.
11. Related party transactions
There have been no material changes to the related party
balances disclosed in the Group's Annual Report and Accounts 2016
and there have been no transactions that have materially affected
the financial position or performance of the Group in the six
months to 31 March 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR PGUBCQUPMPUQ
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